What can you expect if a stock will be bought by a bigger company?

Question

For example, IHOP wants to buy Applebee's. Thanks.

Answer 1

You can expect that the buyer will offer a fair price, the buyer and seller will negotiate, and eventually they may strike a fair bargain. The stockholders of the selling company may get cash for their shares, or they may receive shares of the buying company.

The buying company will make the offer because it thinks the target company is undervalued. Often the offer will be higher than the market price of the seller's stock, so the market price will increase when they buyer makes the offer. If the shareholders of the seller think the price is not high enough, they will vote not to sell. It is also possible that other companies will come forward and offer an even higher price if the target company is very attractive.

Answer 2

It depends on what people in the market think of the two companies and what the buying company is offering. Usually they have to offer more than the market price to get the stock so it drives the price up somewhat (which reduces the reward of speculators who might buy the stock after the announcement.) If the company announces it is in negotiations to buy the other company (not just stock) then the price may go down if the market thinks the buying company will be bad for the purchased company (like Fly-By-Night airlines thinking of buying Southwest)

Answer 3

Usually, but not always, the stock value will increase on the smaller company. Then, once it is sold, you will get a smaller amount of stocks of the new company to replace your older stocks.

Answer 4

Hi,

It's depending on the real intention of the buyers. It may either help or spoil investors' interests in long term though the short term impact is negligible. This has to be assessed by case by case. Anyway you can visit http://www.stockswatcher.info to learn more about this tricky trade. Good luck to you!